"Banking Sector Household Loan Defaults Surge to 3 Trillion Won by Year-End"
It has been analyzed that the 'Non-Performing Loans (NPL)' classified as substandard loans due to being overdue for more than three months among household loans of domestic banks will reach 3 trillion won by the end of this year.
Although the overall loss absorption capacity of the banking industry is considered sufficient, it is pointed out that the banking sector must closely monitor macro variables as the NPL ratio is expected to surge.
Senior Research Fellow Lee Ji-eon of the Korea Institute of Finance stated this on the 28th through the report titled "Risk Prediction of Household Loans in Domestic Banks."
Senior Research Fellow Lee estimated econometric models of the NPL ratio of household loans in domestic banks and macro variables from 2010 to last year, and used these to predict the NPL ratio for this year.
As a result, the household loan NPL ratio is expected to rise from 0.18% in the fourth quarter of last year to 0.33% by the end of this year. In terms of amount, this means that the substandard household loans of domestic banks will increase from 1.7 trillion won at the end of last year to 3 trillion won by the end of this year.
Senior Research Fellow Lee viewed that the banking industry's loss absorption capacity would be sufficient. This is because the domestic banks' equity capital was 279 trillion won as of the end of last year, and net income also exceeded 18 trillion won.
However, since the NPL ratio, which had been declining since 2012, is suddenly increasing, it is advised to observe how far and to what extent this trend will proceed. Senior Research Fellow Lee said, "The banking sector should closely monitor macro variables, keep a close watch on changes in the NPL ratio, and make every effort to manage household loan risks."
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Meanwhile, household loans across all financial sectors in South Korea have surged at an average annual rate of 6.8% from 2010 to 2022. The financial authorities established household debt management measures in 2021, and household debt stopped increasing last year. However, the ratio of household debt to Gross Domestic Product (GDP) in South Korea still exceeds 100%.
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